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WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA

Year 2012, Volume: 4 Issue: 2, 151 - 159, 01.12.2012

Ruzita Abdul Rahim Nor Azizan Che Embi Othman Yong

Abstract

This study examines the winner’s curse hypothesis in a sample of 384 IPOs listed on Bursa Malaysia from 1999 to 2008. We use two alternative measures to test winner’s curse; allocation rate (ALLOCTj) measures the probability of getting the allocation while private placement (DPRIVATE) measures the institutional investor involvement in the IPOs. The coefficient of both ALLOCTj and DPRIVATE are significantly negative consistent with winner’s curse hypothesis. Investors are more likely to get (win) most of their subscription if the IPOs are overpriced. Similarly, investors identify the issues that do not involve institutional investors as risky and overpriced. Issuers/underwriters proactively respond by deliberately underpricing the IPOs to allure the uninformed investors into the market

Keywords

Winner’s curse Allocation rate Private Placement Initial Public Offerings Malaysian IPO market

References

  • Abdul Rahim, Ruzita and Othman Yong (2010), “Initial Returns of Malaysian IPOs and Shariah-compliant Status”, Journal of Islamic Accounting and Business Research, Vol. 1, No. 1, pp. 60-74.
  • Agarwal, Sumit, Chunlin Liu and S. Ghon Rhee (2008), “Investor Demand for IPOs and Aftermarket Performance: Evidence from the Hong Kong Stock Market”, Journal of International Financial Markets, Institutions and Money, Vol. 18, pp. 176-190.
  • Aggarwal, Reena and Pietra Rivoli (1990), “Fads in the Initial Public Offering Market”, Financial Management, Vol. 19, pp. 45-57.
  • Akerlof, George A. (1970), “The Market for “Lemons”: Qualitative Uncertainty and the Market Mechanism”, Quarterly Journal of Economics, Vol. 85, pp. 488- 500.
  • Amihud, Yakov, Shmuel Hauser and Amir Kirsh (2003), “Allocations, Adverse Selection, and Cascades in IPOs: Evidence from the Tel Aviv Stock Exchange”, Journal of Financial Economics, Vol. 68, pp. 137- 158.
  • Chowdhry, Bhagwan and Ann E. Sherman (1996), “The Winner’s Curse and International Methods of Allocating Initial Public Offerings”, Pacific-Basin Finance Journal, Vol. 4, pp. 15-30.
  • Dawson, Steven M. (1987), “Secondary Stock Market Performance of Initial Public Offers, Hong Kong, Singapore and Malaysia: 1978 -1984”, Journal of Business Finance Account, Vol. 14, pp. 65-76.
  • Finn, Frank J. and Ron Higham (1988), “The Performance of Unseasoned New Equity Issues-Cum-Stock Exchange Listings in Australia”, Journal of Banking and Finance, Vol. 12, pp. 333-351
  • Ibbotson, Roger G. and Jeffrey F.Jaffe (1975), “Hot Issue Markets”, Journal of Finance, Vol. 30, pp. 1027-1042.
  • Jelic, Ranko, Brahim Saadouni, and Richard Briston (2001), “Performance of Malaysian IPOs: Underwriters Reputation and Management Earnings Forecasts”, Pacific-Basin Finance Journal, Vol. 9, pp. 457-486.
  • Koh, Francis and Terry Walter (1989), “A Direct Test of Rock’s Model of The Pricing of Unseasoned Issues”, Journal of Financial Economics, Vol. 23, pp. 251- 272.
  • Leland, Hayne E. and David H. Pyle (1977), “Information Asymmetries, Financial Structure, and Financial Intermediation”, Journal of Finance, Vol. 32, pp. 371-387.
  • Lin, Dennis K. J., Lanfeng Kao and Anlin Chen (2010), “Winner’s Curse in Initial Public Offering subscriptions with Investors’ Withdrawal Options”, Asia-Pacific Journal of Financial Studies, Vol. 39, pp. 3–27
  • Loughran, Tim, Jay R. Ritter and Kristian Rydqvist (1994), “Initial Public Offerings: International Insights”, Pacific-Basin Finance Journal, Vol. 2, pp. 165- 199.
  • Reilly, Frank K. and Kenneth Hatfield (1969), “Investor Experience with New Stock Issues”, Financial Analyst Journal, Vol. 25, pp. 73-80.
  • Rock, Kevin (1986), “Why New Issues are Underpriced?”, Journal of Financial Economics, Vol. 15, pp. 187-212.
  • Welch, Ivo (1992), “Sequential Sales, Learning, and Cascades”, Journal of Finance, Vol. 47, pp. 695-732.
  • Yong, Othman (1991), “Performance of New Issue Securities in Malaysia”, Malaysian Accountant (June), pp. 3-6.
  • Yong, Othman and Zaidi Isa (2003), “Initial Performance of New Issues of Shares in Malaysia”, Applied Economics, Vol. 35, pp. 919-930.
  • Yong, Othman (2011), “Winner’s Curse and Bandwagon Effect in Malaysian IPOs: Evidence from 2001-2009”, Jurnal Pengurusan Vol. 32, pp. 21 - 26.

Year 2012, Volume: 4 Issue: 2, 151 - 159, 01.12.2012

Ruzita Abdul Rahim Nor Azizan Che Embi Othman Yong

Abstract

References

  • Abdul Rahim, Ruzita and Othman Yong (2010), “Initial Returns of Malaysian IPOs and Shariah-compliant Status”, Journal of Islamic Accounting and Business Research, Vol. 1, No. 1, pp. 60-74.
  • Agarwal, Sumit, Chunlin Liu and S. Ghon Rhee (2008), “Investor Demand for IPOs and Aftermarket Performance: Evidence from the Hong Kong Stock Market”, Journal of International Financial Markets, Institutions and Money, Vol. 18, pp. 176-190.
  • Aggarwal, Reena and Pietra Rivoli (1990), “Fads in the Initial Public Offering Market”, Financial Management, Vol. 19, pp. 45-57.
  • Akerlof, George A. (1970), “The Market for “Lemons”: Qualitative Uncertainty and the Market Mechanism”, Quarterly Journal of Economics, Vol. 85, pp. 488- 500.
  • Amihud, Yakov, Shmuel Hauser and Amir Kirsh (2003), “Allocations, Adverse Selection, and Cascades in IPOs: Evidence from the Tel Aviv Stock Exchange”, Journal of Financial Economics, Vol. 68, pp. 137- 158.
  • Chowdhry, Bhagwan and Ann E. Sherman (1996), “The Winner’s Curse and International Methods of Allocating Initial Public Offerings”, Pacific-Basin Finance Journal, Vol. 4, pp. 15-30.
  • Dawson, Steven M. (1987), “Secondary Stock Market Performance of Initial Public Offers, Hong Kong, Singapore and Malaysia: 1978 -1984”, Journal of Business Finance Account, Vol. 14, pp. 65-76.
  • Finn, Frank J. and Ron Higham (1988), “The Performance of Unseasoned New Equity Issues-Cum-Stock Exchange Listings in Australia”, Journal of Banking and Finance, Vol. 12, pp. 333-351
  • Ibbotson, Roger G. and Jeffrey F.Jaffe (1975), “Hot Issue Markets”, Journal of Finance, Vol. 30, pp. 1027-1042.
  • Jelic, Ranko, Brahim Saadouni, and Richard Briston (2001), “Performance of Malaysian IPOs: Underwriters Reputation and Management Earnings Forecasts”, Pacific-Basin Finance Journal, Vol. 9, pp. 457-486.
  • Koh, Francis and Terry Walter (1989), “A Direct Test of Rock’s Model of The Pricing of Unseasoned Issues”, Journal of Financial Economics, Vol. 23, pp. 251- 272.
  • Leland, Hayne E. and David H. Pyle (1977), “Information Asymmetries, Financial Structure, and Financial Intermediation”, Journal of Finance, Vol. 32, pp. 371-387.
  • Lin, Dennis K. J., Lanfeng Kao and Anlin Chen (2010), “Winner’s Curse in Initial Public Offering subscriptions with Investors’ Withdrawal Options”, Asia-Pacific Journal of Financial Studies, Vol. 39, pp. 3–27
  • Loughran, Tim, Jay R. Ritter and Kristian Rydqvist (1994), “Initial Public Offerings: International Insights”, Pacific-Basin Finance Journal, Vol. 2, pp. 165- 199.
  • Reilly, Frank K. and Kenneth Hatfield (1969), “Investor Experience with New Stock Issues”, Financial Analyst Journal, Vol. 25, pp. 73-80.
  • Rock, Kevin (1986), “Why New Issues are Underpriced?”, Journal of Financial Economics, Vol. 15, pp. 187-212.
  • Welch, Ivo (1992), “Sequential Sales, Learning, and Cascades”, Journal of Finance, Vol. 47, pp. 695-732.
  • Yong, Othman (1991), “Performance of New Issue Securities in Malaysia”, Malaysian Accountant (June), pp. 3-6.
  • Yong, Othman and Zaidi Isa (2003), “Initial Performance of New Issues of Shares in Malaysia”, Applied Economics, Vol. 35, pp. 919-930.
  • Yong, Othman (2011), “Winner’s Curse and Bandwagon Effect in Malaysian IPOs: Evidence from 2001-2009”, Jurnal Pengurusan Vol. 32, pp. 21 - 26.
There are 20 citations in total.

Details

Other ID JA58CU63MY
Journal Section Articles
Authors

Ruzita Abdul Rahim This is me

Nor Azizan Che Embi This is me

Othman Yong This is me

Publication Date December 1, 2012
Published in Issue Year 2012 Volume: 4 Issue: 2

Cite

APA Rahim, R. A., Embi, N. A. C., & Yong, O. (2012). WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA. International Journal of Business and Management Studies, 4(2), 151-159.
AMA Rahim RA, Embi NAC, Yong O. WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA. IJBMS. December 2012;4(2):151-159.
Chicago Rahim, Ruzita Abdul, Nor Azizan Che Embi, and Othman Yong. “WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA”. International Journal of Business and Management Studies 4, no. 2 (December 2012): 151-59.
EndNote Rahim RA, Embi NAC, Yong O (December 1, 2012) WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA. International Journal of Business and Management Studies 4 2 151–159.
IEEE R. A. Rahim, N. A. C. Embi, and O. Yong, “WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA”, IJBMS, vol. 4, no. 2, pp. 151–159, 2012.
ISNAD Rahim, Ruzita Abdul et al. “WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA”. International Journal of Business and Management Studies 4/2 (December 2012), 151-159.
JAMA Rahim RA, Embi NAC, Yong O. WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA. IJBMS. 2012;4:151–159.
MLA Rahim, Ruzita Abdul et al. “WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA”. International Journal of Business and Management Studies, vol. 4, no. 2, 2012, pp. 151-9.
Vancouver Rahim RA, Embi NAC, Yong O. WINNER’S CURSE AND IPO INITIAL PERFORMANCE: NEW EVIDENCE FROM MALAYSIA. IJBMS. 2012;4(2):151-9.